Employee Benefit Plans

12 Months Ended

Dec. 31, 2022

Employee Benefit and Share-Based Payment Arrangement, Noncash Expense [Abstract]

Employee Benefit Plans

NOTE 11: EMPLOYEE BENEFIT PLANS

We sponsor various domestic and foreign employee benefit plans, which are discussed below.

Employee Savings Plans. We sponsor various employee savings plans. Our contributions to employer sponsored defined contribution plans were $1,037 million, $962 million and $875 million for 2022, 2021 and 2020, respectively.

Our non-union domestic employee savings plan for legacy UTC employees uses an Employee Stock Ownership Plan (ESOP) for employer matching contributions. External borrowings were used by the ESOP to fund a portion of its purchase of ESOP stock from us. The external borrowings have been extinguished and only re-amortized loans remain between RTC and the ESOP Trust. As ESOP debt service payments are made, common stock is released from an unreleased shares account. ESOP debt may be prepaid or re-amortized to either increase or decrease the number of shares released so that the value of released shares equals the value of plan benefit. We may also, at our option, contribute additional common stock or cash to the ESOP.

Shares of common stock are allocated to employees’ ESOP accounts at fair value on the date earned. Cash dividends on common stock held by the ESOP are used for debt service payments. Participants may choose to have their ESOP dividends reinvested or distributed in cash. Common stock allocated to ESOP participants is included in the average number of common shares outstanding for both basic and diluted EPS. At December 31, 2022, 24.7 million common shares had been allocated to employees, leaving 5.1 million unallocated common shares in the ESOP Trust, with a fair value of $512 million.

Pension and Postretirement Plans. We sponsor both funded and unfunded domestic and foreign defined benefit pension plans that cover a large number of our employees. Our largest plans are generally closed to new participants. We also sponsor both funded and unfunded PRB plans that provide health care and life insurance benefits to eligible retirees. Our plans use a December 31 measurement date consistent with our fiscal year.

Raytheon Company has both funded and unfunded domestic and foreign defined benefit pension and PRB plans. As of the merger date, the Raytheon Company plans were remeasured at fair value using accounting policies consistent with the UTC plans. Refer to “Note 2: Business Acquisitions, Dispositions, Goodwill and Intangible Assets” for additional information. The deferred pension and PRB plan losses included in Raytheon Company’s accumulated other comprehensive income (loss) as of the merger date were eliminated and are no longer subject to amortization in net periodic benefit (income) expense. Amounts prior to the merger date of April 3, 2020 do not include the Raytheon Company pension plan results.

In December 2020, we approved a change to the Raytheon Company domestic benefit pension plans for non-union participants to cease future benefit accruals based on an employee’s years of service and compensation under the historical formula effective December 31, 2022. The plan change does not impact participants’ historical benefit accruals. Benefits for service after December 31, 2022 will be based on a cash balance formula. We utilized a practical expedient and measured the plan assets and pension benefit obligations for the effected pension plans as of the nearest month end, December 31, 2020, resulting in a prior service credit of $2.1 billion.

For non-union employees in the UTC domestic pension plans, benefits for service up to December 31, 2014 are generally based on the employee’s years of service and compensation. Benefits for service after December 31, 2014 and through December 31, 2019 are based on the existing cash balance formula that was adopted in 2003 for newly hired non-union employees and for non-union employees who made a one-time voluntary election to have future benefit accruals determined under this formula. In September 2019, we amended the UTC domestic defined benefit pension plans to cease accrual of additional benefits for future service and compensation for non-union participants effective December 31, 2019. Beginning January 1, 2020, these participants began receiving additional contributions under the UTC domestic defined contribution

plan. Benefits for union employees in the UTC domestic pension plans are generally based on a stated amount for each year of service.

We made the following contributions to our pension and PRB plans’ trusts during the years ended December 31:

(dollars in millions)	2022		2021		2020
U.S. qualified defined benefit plans	$	—	$	—	$	885
International defined benefit plans	69		42		125
PRB plans	25		17		15

The contributions to our U.S. qualified defined benefit plans in 2020 include a $750 million discretionary contribution to the Raytheon Company U.S. qualified pension plans’ trust. The contributions to our International defined benefit plans in 2020 include discretionary contributions of $51 million.

	Pension				PRB
(dollars in millions)	2022		2021		2022		2021
Change in Benefit Obligation:
Beginning balance	$	67,214	$	71,257	$	1,370	$	1,535
Service cost attributable to continuing operations	470		523		6		7
Interest cost	1,520		1,249		29		24
Actuarial gain	(15,466)		(1,643)		(294)		(73)
Total benefits paid(1)	(4,328)		(4,098)		(166)		(165)
Net settlement, curtailment and special termination benefits	3		(89)		(8)		(11)
Plan amendments	131		59		—		—
Business combinations and divestitures	—		48		—		—
Other (2)	(516)		(92)		47		53
Ending balance	$	49,028	$	67,214	$	984	$	1,370
Change in Plan Assets:
Beginning balance	$	63,323	$	62,318	$	389	$	381
Actual return on plan assets	(10,841)		4,983		(63)		36
Employer contributions(1)	306		289		98		95
Total benefits paid(1)	(4,328)		(4,098)		(166)		(165)
Settlements	(4)		(85)		(8)		(11)
Other (2)	(496)		(84)		52		53
Ending balance	$	47,960	$	63,323	$	302	$	389
Funded Status:
Fair value of plan assets	$	47,960	$	63,323	$	302	$	389
Benefit obligations	(49,028)		(67,214)		(984)		(1,370)
Funded status of plan	$	(1,068)	$	(3,891)	$	(682)	$	(981)
Amounts Recognized in the Consolidated Balance Sheet Consist of:
Noncurrent assets	$	3,301	$	3,214	$	—	$	—
Current liability	(236)		(232)		(71)		(78)
Noncurrent liability	(4,133)		(6,873)		(611)		(903)
Net amount recognized	$	(1,068)	$	(3,891)	$	(682)	$	(981)
Amounts Recognized in Accumulated Other Comprehensive Loss Consist of:
Net actuarial (gain) loss	$	2,950	$	4,402	$	(394)	$	(199)
Prior service credit	(1,424)		(1,715)		(4)		(6)
Net amount recognized	$	1,526	$	2,687	$	(398)	$	(205)

(1)    Includes benefit payments paid directly by the company.

(2)    The amount included in Other primarily reflects the impact of foreign exchange translation, primarily for plans in the United Kingdom (U.K.) and Canada, and participant contributions.

The majority of our pension obligations relate to our U.S. Internal Revenue Service (IRS) qualified pension plans, which comprise 87% and 86% of our pension PBO as of December 31, 2022 and 2021, respectively. 3% of our pension PBO as of both December 31, 2022 and 2021 is attributable to our nonqualified domestic pension plans, which provide supplementary retirement benefits to certain employees in excess of the IRS qualified plan limits. International plans comprise 10% and 11% of the pension PBO as of December 31, 2022 and 2021, respectively, and are considered defined benefit pension plans for accounting purposes.

In addition to the pension and PRB noncurrent liabilities shown above, Future pension and postretirement benefit obligations on the Consolidated Balance Sheet includes other immaterial pension and PRB-related liabilities.

Information for pension plans with accumulated benefit obligations in excess of plan assets: 

(dollars in millions)	2022		2021
Projected benefit obligation	$	22,116	$	28,960
Accumulated benefit obligation	22,080		28,494
Fair value of plan assets	17,747		22,002

The accumulated benefit obligation for all defined benefit pension plans was $48.8 billion and $66.5 billion at December 31, 2022 and 2021, respectively.

Information for pension plans with projected benefit obligations in excess of plan assets: 

(dollars in millions)	2022		2021
Projected benefit obligation	$	22,116	$	31,471
Accumulated benefit obligation	22,080		30,745
Fair value of plan assets	17,747		24,366

The components of the net periodic pension (income) expense are as follows: 

(dollars in millions)	2022		2021		2020
Operating expense
Service cost	$	470	$	523	$	483
Non-operating expense
Interest cost	1,520		1,249		1,650
Expected return on plan assets	(3,544)		(3,476)		(2,995)
Amortization of prior service cost (credit)	(163)		(168)		51
Recognized actuarial net loss	305		435		337
Net settlement, curtailment and special termination benefits loss	2		22		45
Non-service pension income	(1,880)		(1,938)		(912)
Total net periodic pension benefit (income) expense	$	(1,410)	$	(1,415)	$	(429)

The components of the net periodic PRB (income) expense are as follows:

(dollars in millions)	2022		2021		2020
Operating expense
Service cost	$	6	$	7	$	6
Non-operating expense
Interest cost	29		24		37
Expected return on plan assets	(22)		(21)		(13)
Amortization of prior service credit	(2)		(3)		(3)
Recognized actuarial net gain	(11)		(6)		(12)
Net settlement, curtailment and special termination benefits (gain) loss	(3)		—		1
Non-service pension (income) expense	(9)		(6)		10
Total net periodic PRB benefit (income) expense	$	(3)	$	1	$	16

Other changes in pension plan assets and benefit obligations recognized in other comprehensive loss in 2022 and 2021 are as follows:

(dollars in millions)	2022		2021
Net actuarial gain arising during the period	$	(1,082)	$	(3,158)
Amortization of actuarial loss	(305)		(435)
Current year prior service cost	131		59
Amortization of prior service credit	163		168
Net settlement and curtailment	1		(17)
Other (1)	(69)		(6)
Total recognized in other comprehensive (income) loss	(1,161)		(3,389)
Net recognized in net periodic benefit (income) cost and other comprehensive (income) loss	$	(2,571)	$	(4,804)

(1)    The amount included in Other primarily reflects the impact of foreign exchange translation, primarily for plans in the U.K. and Canada.

The Actuarial gain arising in 2022 was primarily due to an increase in discount rates during 2022, partially offset by actual asset returns less than our expected return on assets.

The Actuarial gain arising in 2021 was primarily due to an increase in discount rates during 2021 and asset returns exceeding our expected return on assets, partially offset by demographic losses.

Other changes in PRB assets and benefit obligations recognized in other comprehensive loss in 2022 and 2021 are as follows:

(dollars in millions)	2022		2021
Net actuarial gain arising during the period	$	(209)	$	(88)
Amortization of actuarial gain	11		6
Amortization of prior service credit	2		3
Net settlement and curtailment	3		—
Total recognized in other comprehensive (income) loss	(193)		(79)
Net recognized in net periodic benefit (income) cost and other comprehensive loss	$	(196)	$	(78)

The Actuarial gain arising in 2022 was primarily due to an increase in discount rates during 2022, partially offset by actual asset returns less than our expected return on assets on our funded plans.

The Actuarial gain arising in 2021 was primarily due to an increase in discount rates during 2021 and asset returns exceeding our expected return on assets on our funded plans.

The table below reflects the total benefit payments expected to be paid from the plans or from corporate assets.

(dollars in millions)	Pension		PRB
2023	$	4,418	$	107
2024	3,796		100
2025	3,780		94
2026	3,734		89
2027	3,671		84
2028-2032	17,654		357

Major assumptions used in determining the pension benefit obligation and net periodic pension benefit (income) expense are presented in the following table as weighted-averages: 

	Benefit Obligation				Net Periodic Benefit (Income) Expense
	2022		2021		2022		2021		2020
Discount rate
PBO	5.5	%	2.8	%	2.8	%	2.5	%	3.2	%
Interest cost (1)	N/A		N/A		2.3	%	1.8	%	2.8	%
Service cost (1)	N/A		N/A		3.1	%	2.8	%	3.5	%
Salary scale	4.4	%	4.4	%	4.4	%	4.4	%	4.3	%
Expected return on plan assets	N/A		N/A		6.5	%	6.5	%	6.5	%
Interest crediting rate	4.5	%	4.0	%	4.0	%	3.8	%	3.8	%

(1)    The discount rates used to measure the service cost and interest cost applies to our significant plans. The PBO discount rate is used for the service cost and interest cost measurements for non-significant plans.

Major assumptions used in determining the PRB benefit obligation and net periodic PRB (income) expense are presented in the following table as weighted-averages: 

	Benefit Obligation				Net Periodic Benefit (Income) Expense
	2022		2021		2022		2021		2020
Discount rate	5.5	%	2.8	%	2.8	%	2.4	%	3.1	%
Expected return on assets	N/A		N/A		5.7	%	5.7	%	5.7	%

Assumed health care cost trend rates used in determining the PRB benefit obligation and net periodic PRB (income) expense are as follows:

	2022		2021
Health care cost trend rate assumed for next year	5.0	%	4.7	%
Ultimate health care cost trend rate	4.2	%	4.2	%
Year that the rate reaches the ultimate health care cost trend rate	2029		2026

The weighted-average discount rates used to measure pension and PRB liabilities are based on yield curves developed using high-quality corporate bonds as well as plan specific expected cash flows. For our significant plans, we utilize a full yield curve approach in the estimation of the service cost and interest cost components of net periodic benefit expense by applying the specific spot rates along the yield curve used in determination of the benefit obligation to the relevant discounted projected cash flows.

In determining the EROA assumption, we consider the target asset allocation of plan assets, as well as economic and other indicators of future performance. We consult with and consider the opinions of financial and other professionals in determining the appropriate capital market assumptions. Return projections are validated using a simulation model that incorporates yield curves, credit spreads and risk premiums to project long-term prospective returns. As a result of this analysis at year end 2022, our weighted average pension EROA assumption for 2023 increased to 7.1%.

Plan Assets. The plans’ investment management objectives include providing the liquidity and asset levels needed to meet current and future benefit payments, while maintaining a prudent degree of portfolio diversification considering interest rate risk and market volatility. Globally, investment strategies generally target a mix of 40% to 45% of growth seeking assets and 55% to 60% of income generating and hedging assets using a wide set of diversified asset types, fund strategies and investment managers. The growth seeking allocation consists of global public equities in developed and emerging countries, private equity, real estate and multi-asset class strategies. Growth assets include an enhanced alpha strategy that invests in publicly traded equity and fixed income securities, derivatives and foreign currency. Investments in private equity are primarily via limited partnership interests in buy-out strategies with smaller allocations to distressed debt funds. The real estate strategy is principally concentrated in directly held U.S. core investments with some smaller investments in international, value-added and opportunistic strategies. Within the income generating assets, the fixed income portfolio consists of mainly government and broadly diversified high quality corporate bonds.

The plans have continued their pension risk management techniques designed to reduce their interest rate risk. Specifically, the plans have incorporated liability hedging programs that include the adoption of a risk reduction objective as part of the long-term investment strategy. Under this objective the interest rate hedge is intended to increase as funded status improves. The

hedging programs incorporate a range of assets and investment tools, each with varying interest rate sensitivities. The investment portfolios are currently hedging approximately 40% to 80% of the interest rate sensitivity of the pension plan liabilities, depending on the funded status of the plan.

The fair values of pension plan assets at December 31, 2022 and 2021 by asset category are as follows:

(dollars in millions)	Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Not Subject to Leveling(8)		Total
Asset Category:
Public Equities
Global Equities	$	6,194	$	5	$	—	$	—	$	6,199
Global Equity Commingled Funds (1)	20		568		—		—		588
Enhanced Global Equities (2)	(53)		75		—		—		22
Other Public Equities	—		—		—		5,771		5,771
Private Equities (3)	—		—		—		4,068		4,068
Fixed Income Securities
Governments	2,526		1,426		—		—		3,952
Corporate Bonds	1		12,638		—		—		12,639
Structured Products	—		57		—		—		57
Other Fixed Income	—		—		—		6,975		6,975
Real Estate (4)	—		—		1,650		1,761		3,411
Other (5)	—		84		—		3,071		3,155
Cash & Cash Equivalents (6)	—		150		—		164		314
Subtotal	$	8,688	$	15,003	$	1,650	$	21,810	$	47,151
Other Assets & Liabilities (7)									809
Total at December 31, 2022									$	47,960
Public Equities
Global Equities	$	9,411	$	6	$	—	$	—	$	9,417
Global Equity Commingled Funds (1)	3		929		—		—		932
Enhanced Global Equities (2)	46		163		—		—		209
Other Public Equities	—		—		—		8,495		8,495
Private Equities (3)	—		—		—		4,490		4,490
Fixed Income Securities
Governments	1,933		1,172		—		—		3,105
Corporate Bonds	1		18,681		—		—		18,682
Structured Products	—		25		—		—		25
Other Fixed Income	—		—		—		7,367		7,367
Real Estate (4)	—		—		1,885		1,743		3,628
Other (5)	—		91		—		5,351		5,442
Cash & Cash Equivalents (6)	—		111		—		220		331
Subtotal	$	11,394	$	21,178	$	1,885	$	27,666	$	62,123
Other Assets & Liabilities (7)									1,200
Total at December 31, 2021									$	63,323

(1)    Represents commingled funds that invest primarily in common stocks.

(2)    Represents enhanced equity separate account and commingled fund portfolios. A portion of the portfolio may include long-short market neutral and relative value strategies that invest in publicly traded, equity and fixed income securities, as well as derivatives of equity and fixed income securities and foreign currency.

(3)    Represents limited partnership investments with general partners that primarily invest in equity and debt.

(4)    Represents investments in real estate including commingled funds and directly held properties.

(5)    Represents global balanced risk commingled funds that invest in multiple asset classes including equity, fixed income and some commodities. “Other” also includes insurance contracts.

(6)    Represents short-term commercial paper, bonds and other cash or cash-like instruments.

(7)    Represents receivables, payables and certain individually immaterial international plan assets that are not leveled.

(8)    In accordance with ASU 2015-07, Fair Value Measurement (Topic 820), certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented for the total pension benefits plan assets.

Derivatives in the plan are primarily used to manage risk and gain asset class exposure while still maintaining liquidity. Derivative instruments mainly consist of equity futures, interest rate futures, interest rate swaps and currency forward contracts. The fair market value of the plans’ derivatives through direct or separate account investments was approximately $(79) million and $98 million as of December 31, 2022 and 2021, respectively.

We review our assets at least quarterly to ensure we are within the targeted asset allocation ranges and, if necessary, asset balances are adjusted back within target allocations. We employ a broadly diversified investment manager structure that includes diversification by active and passive management, style, capitalization, country, sector, industry and number of investment managers. No individual investment represented more than 5% of the plan assets as of December 31, 2022.

The fair value measurement of plan assets using significant unobservable inputs (Level 3) changed due to the following:

(dollars in millions)	Corporate Bonds		Real Estate		Total
Balance, December 31, 2020	$	2	$	1,647	$	1,649
Realized gains	—		212		212
Unrealized gains relating to instruments still held in the reporting period	—		50		50
Purchases, sales, and settlements, net	—		(24)		(24)
Transfers in/out, net	(2)		—		(2)
Balance, December 31, 2021	—		1,885		1,885
Realized gains	—		76		76
Unrealized gains relating to instruments still held in the reporting period	—		64		64
Purchases, sales, and settlements, net	—		(211)		(211)
Transfers in/out, net	—		(164)		(164)
Balance, December 31, 2022	$	—	$	1,650	$	1,650

Quoted market prices are used to value investments when available. Investments in securities traded on exchanges, including listed futures and options, are valued at the last reported sale prices on the last business day of the year or, if not available, the last reported bid prices. Fixed income securities are primarily measured using a market approach pricing methodology, where observable prices are obtained by market transactions involving identical or comparable securities of issuers with similar credit ratings. Mortgages have been valued on the basis of their future principal and interest payments discounted at prevailing interest rates for similar investments. Investment contracts are valued at fair value by discounting the related cash flows based on current yields of similar instruments with comparable durations. Real estate investments are valued on a quarterly basis using discounted cash flow models which consider long-term lease estimates, future rental receipts and estimated residual values. Valuation estimates are supplemented by third-party appraisals on an annual basis.

The fair market value of assets related to our PRB benefits was $302 million and $389 million as of December 31, 2022 and 2021, respectively. These assets include $105 million and $147 million of which are invested in our domestic qualified pension plan trust at December 31, 2022 and 2021, respectively. The remaining PRB investments are held within Voluntary Employees’ Beneficiary Association (VEBA) trusts. The VEBA assets are generally invested in mutual funds and are valued primarily using quoted prices in active markets (Level 1). There were no Level 3 investments in the VEBA trusts as of December 31, 2022 or 2021.

We have set aside assets in separate trusts, which we expect to be used to pay for certain nonqualified defined benefit and defined contribution plan obligations in excess of qualified plan limits. These assets are included in Other assets in our Consolidated Balance Sheet. The fair value of marketable securities held in trusts as of December 31 was as follows:

(dollars in millions)	2022		2021
Marketable securities held in trusts	$	774	$	965